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Viewing report
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Russia's Forestry Industry Overview
Aginsky Consulting Group, Aug 2008
The author believes that the recent development in Russia's forestry sector has created the ideal environment for North American companies to outsource their operations to the region. What better way to diversify and strategically secure a source of timber for the future, while manufacturing high end products at low costs, than by taking advantage of the labor arbitrage opportunities that exist in the market. Companies from Western Europe have identified these opportunities and are moving at great speed to take advantage of them. It is time for North American companies to realize the potential of the market and make Russia part of their immediate and long term strategies.
Demand for forestry equipment is expected to be high over the coming years as Russia modernizes its aging fleet of forest harvesters and adapts new western equipment and techniques.
According to John Deere, 85% of the machines and equipment used in the Russian timber industry is obsolete. John Deere estimates the annual Russian forestry equipment replacement market to be around $350 million (1,200 units). Rapid modernization is already taking place at most pulp and paper plants, wood harvesting and processing companies, and is expanding outward to smaller companies across the country. Among these is Ilim Pulp Enterprise, which is currently implementing a $600 million investment program for the development of its production facilities and the purchase of new equipment.
For many years, the Russian forestry and woodworking industry has been export-oriented. Today, however, exports of raw timber are generating smaller profits and many enterprises are re-tooling their operations to produce value-added items for the domestic and foreign markets. Products include those used in domestic construction and in furniture production, such as construction board, beams, doors, and window frames. Because of strong local demand, the domestic wooden housing industry is growing and requires modern equipment for production of various types of board and other wooden construction materials.
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